6
Meeting
industry
requirements
Chapter at a glance
• We have sought to design a
• An advance market commitment
•
•
•
mechanism to which industry will
respond by increasing R&D on
vaccines for diseases occurring
mainly in developing countries.
Industry is attracted to the
concept of payment for results;
the market mechanism fits
their business model well and
preserves the role of intellectual
property rights and market sales
financing commercial investment in
pharmaceutical R&D.
Our consultations revealed a range
of priorities for the commitment
from different parts of industry.
would be of value to developingcountry suppliers, which often do
not benefit from other incentive
arrangements.
Complementary measures
are needed to improve the
procurement of existing vaccines,
improve demand forecasts and
increase funding for existing drugs
and vaccines.
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Meeting industry requirements
A range of industry requirements
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The success of the advance market commitment depends on
creating effective incentives for potential vaccine developers and
suppliers who see a scientific potential to invest. The program
is intended to create incentives to accelerate the development
of new vaccines, but the details of the design may make a significant difference to the incentives that the contract creates.
Critical determinants of success include the size of the reward,
the contractual requirements placed on the firm (for example,
the eligibility requirements) and the public relations impact of
participation.
We have borne in mind that our goal is not to encourage all
firms to work on these products. It is to accelerate the development of a vaccine by providing sufficient incentive for some firms
to begin R&D on these problems, and for others to devote extra
resources and priority to their existing work.
Initial research often is done by biotech companies. Typically,
their work is then either licensed to, or bought by, larger pharmaceutical companies for the later stages of development, marketing
and manufacturing. An important ingredient in the proposal is
that it should generate a response from biotechs and other earlystage researchers—for example, by creating a sufficient market
for the vaccine to give them confidence that pharmaceutical
companies will invest in intermediate research outputs. Biotech
companies and venture capitalists would be more willing to invest
because they would be more confident that they would attract
interest from pharmaceutical companies for the products they
develop. There is considerable evidence that firms do, in fact,
respond to market signals by adjusting their R&D to reflect the
size of the potential market.1
The only way to know for sure how firms would react is to
implement a commitment and observe what happens. In the
meantime, it is possible to obtain information through structured
consultations with informed individuals, particularly those who
are currently facing difficult choices about where to invest in
R&D to yield the best outcome for shareholders. We consulted
representatives of three industry groups—biotechnology firms of
various sizes and orientations, multinational vaccine manufacturers and emerging market suppliers (box 6.1). We sought feedback
on the overall concept and tried to identify specific ways in which
the advance contract concept could be structured to most likely
generate a change in investment behavior. The results of these
discussions, summarized here, were invaluable for developing our
recommendations. Our aim has been to design a commitment
that creates the right commercial incentives to encourage industry
to invest, while ensuring value for money for sponsors.
The industry is diverse
Firms had various reactions to the idea of an advance commitment, depending on their risk tolerance, product pipeline, scientific background and business model. There was a greater degree
of consistency within industry categories, but even within these
categories each firm indicated a unique character and strategic
agenda. For example, pharmaceutical companies with vaccines
coming to market soon were more interested in commitments
for late-stage products than were biotechs engaged in research
on early-stage products.
Many firms expressed a view that an advance market commitment, if structured in the right way, would be exactly what
they needed to make the case for keeping global health products
in the development pathway. Others felt there was little commercial motivation that could stimulate a dramatic change in
their research pipelines.
Although some have interpreted advance market commitments
to be targeted at multinational firms, emerging suppliers from
developing countries would also have the potential to benefit.
Unlike some incentives that would benefit primarily large and
profitable pharmaceutical companies (U.S. tax credits, transferable patents), all firms would be in a position to compete for the
market offered by this commitment. Major vaccine firms in Brazil,
Box 6.1
Industry consultations
• Biotechs: Ardana, Avant, Human Genome Sciences,
Maxygen, Mojave Therapeutics, Nectar Therapeutics, Targeted Genetics, Vertex.
• Multinational vaccine manufacturers: AventisPasteur, Chiron, GSK Biologicals, Merck Vaccine
Division, Wyeth.
• Emerging supplier: Serum Institute of India.
In addition, the Working Group spoke with several former senior industry executives.
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India, Indonesia and elsewhere that have demonstrated the capacity to achieve tremendous scale efficiencies of production could
participate through joint ventures or other types of partnerships
with firms that have a strong tradition of innovation.
Key industry requirements
mechanism focused on creating incentives for commercial
investment, would need to be implemented in coordination
with other interventions—push funding, demand creation
and capacity-building for distribution and delivery.
• Weaknesses in the current system of procurement and delivery of vaccines for the developing world are a major deterrent
to investment. Most firms supplying developing-country
markets through public procurement are frustrated with
inefficiencies in the current system—short-term purchase
agreements, the lack of enforceable contracts, unreliable
demand forecasts and underuse of existing vaccines. The
public sector can improve its credibility by increasing use
of existing products and by improving demand forecasts.
• The credibility of the commitment is closely related to
the credibility of the sponsor. Citing real-world examples,
firms were not convinced of the public sector’s ability to
live up to its funding promises that are not legally binding.
Firms indicated that the inclusion of a private foundation
as sponsors would add enormously to the credibility of the
proposal. It was therefore clear from the consultations that
it would be essential for an advance market commitment
to be legally binding on the sponsors, and that nonbinding
statements of intent would not elicit the same response.
• Given the novelty of the advance market commitment for
the public sector, industry will be most persuaded by successful execution. Firms expressed uniform enthusiasm
for implementing long-term contracts for late-stage (and
existing) products. In addition to being directly beneficial
by increasing affordable access to those vaccines, this would
build up the credibility of similar commitments for earlystage products.
We have looked carefully at each of these industry considerations and sought to ensure that our advance market proposal
takes these concerns into account. Firms also gave specific feedback on the proposed structure of advance contracts, particularly
the Framework Agreement and Guarantee Agreement. These
points have been taken into account in the advance market proposal set out in chapters 3 and 4 and are reflected in the discussion in those chapters.
Meeting industry requirements
Some themes emerged from the consultations.
• A commitment is likely to have more impact on some firms
than others. For products at an early stage, for example, an
advance market commitment may initially motivate biotech
companies and the venture capitalists that provide their
funding, while some larger multinational pharmaceutical
firms may get involved only after further advances in the
science, perhaps led by biotech firms.
For
many firms the establishment of a significant financial
•
reward for the successful developer would be important
in within-firm analysis and in negotiations about which
products to move ahead with and at what pace. These
firms cited in particular the moments in the development
pathway when relatively costly decisions are taken to test
products in humans.
• Some respondents indicated that an advance market commitment would address industry concerns about the appropriation of intellectual property and the downward pressure on prices that occurs when an essential medicine is
developed but is seen as unaffordable to the developing
world.
• Commercial decisions to develop a particular candidate
are based on market prospects but also—critically—on
science. Access to a promising scientific pathway will be
the primary determinant of some firms’ investment decisions in early research. There was a wide range of opinions
about the challenges of developing a malaria vaccine, for
example, and some firms reported that they are unwilling
to invest given the current state of science. The public sector will need to keep investing in basic research and lead
development to advance the science.
• Firms do not evaluate incentives independently but look at
the comprehensive picture of risks and rewards they will
face through the development process.
• An advance market commitment, or indeed any similar
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